Selling Is Not a Dirty Word

Investors can always sell, take profits, and pay the taxman, says Mad Money host Jim Cramer, after watching the market plummet on Tuesday.

Selling is not a dirty word, Cramer said Tuesday. Many investors, though, have misconceptions about selling.

To some, selling is what you do when you don't know what you're doing because you aren't trying to make money long term over time. Some people equate selling to trading, where one quickly gets in and out of trades to turn a quick profit. Other people are prodded to sell by their broker, who they assume is only trying to collect a commission. There are people who worry about selling because they'll have to pay the taxman on any profits. There are also people who don’t want to sell because they are afraid of taking a loss.

None of these beliefs hold water with Cramer, though.

To start, Cramer noted the market was up almost 1,000 points until Tuesday's downturn. In turn, individual stocks have gone up a great deal and are often overextended or vulnerable. Shares of Cummins, for example, were hammered earlier in the month. Cramer's charitable trust picked some up, then sold shares shortly there after at higher prices. It turned out there was nothing wrong with taking some off the table because the stock had ran up too much.

Waiting to sell at a certain level, where you can get back to even could be a mistake, too. Take Netflix , for example. Cramer's like the stock from the $50s to the high $200s. When the plan to split the company up backfired and management pre-announced disappointing numbers, though, he recommended selling even off its highs. That call wasn't too late, either, as the stock tumbled another 35 percent on Tuesday.

As far as paying taxes goes, Cramer said the "blind anger" for capital gain tax is "completely insane." After all, someone has to pay the government because the government certainly doesn't pay for itself.

Cramer isn't recommending homegamers become traders, taking profits constantly and following stocks with every ebb and flow. Nobody got hurt taking a little profit here and there, though. The best practice is to buy a few high-yielding stocks because dividends pay you to wait until the market calms and the economy turns around.